Investors worldwide have been rattled by the heightened volatility on share markets over recent weeks.

A combination of factors have largely been to blame, particularly fears around rising interest rates as global inflation levels continue to surge.

Over January the U.S. share market fell more than 5 per cent, its worst performance since the onset of the COVID-19 pandemic in early 2020.

The Australian share market was hit even harder, falling more than 6 per cent over the first month.

But that’s just the short-term story. New Vanguard data shows that, over the last decade, share markets have outperformed all other investment sectors.

In fact, from the start of 2012 up until the end of 2021, investors with a broad share market exposure who reinvested all the dividends they received over time back into the share market would have achieved strong returns.

The U.S. share market was undoubtedly the best place to be over the last decade.

With an average return of 20.6 per cent per annum, a $10,000 initial investment on 2 January 2012 would have grown more than six-fold to around $66,000 by 31 December 2021. That’s a total return of 552 per cent.

International shares – measured by index funds that invest across thousands of companies around the world – achieved an average annual return of 16.8 per cent.

That performance would have turned a $10,000 investment a decade ago into more than $47,000 by the end of last year, for a total return of more than 370 per cent.

By contrast, the Australian share market hasn’t performed as strongly as either the U.S. or international shares.

Its average annual return has been 11 per cent, which would have seen a $10,000 investment at the start of 2012 grow to about $28,000.

Yet that’s still almost triple the initial investment sum and represents a total return of about 180 per cent.

Other asset sectors exposed to the share market also haven’t done badly for investors who’ve stayed the course over the last 10 years.

Take the listed property sector. Despite hitting some major speed bumps along the way, including being the best-performing asset class in 2019 and the worst-performing in 2020, it’s delivered an average annual return of 13.8 per cent.

So a $10,000 investment into a fund tracking the returns of all the listed property companies on the Australian share market in 2012 would have grown to almost $37,000 by 31 December 2021.

That’s not too bad either, representing a total return of 266 per cent.

The big investment takeaway here is that short-term volatility on markets has little if any bearing on long-term investment returns.

In early 2020, over just a few weeks, global share markets tumbled more than 35 per cent.

Yet, by the end of 2020, markets had recovered most of their lost ground. Last year they hit new record highs.

It’s only when you take a long-term view of the performance of share markets over time that you get to see the bigger investment picture.

And it shows that while markets do experience volatility and can sometimes fall quite sharply over short periods, they consistently rise over longer time frames.

During times of uncertainty, shares are likely to be much more volatile than fixed income assets such as bonds.

The 10-year return from bond markets has been just 4.2 per cent per annum, however bonds tend to act as a portfolio stabiliser during choppy conditions.

Cash returns, which closely reflect official interest rates, are largely unaffected by what happens on share markets.

Record low interest rates have resulted in the 10-year return from cash being 1.9 per cent. If you’d left $10,000 in a bank term deposit since 2012, you’d now have about $12,000.

After inflation is taken into account, that’s effectively a negative real return.

The best way to smooth out intermittent volatility and to achieve more consistent returns is to spread your holdings over a range of different assets.

By following a strategy of reinvesting investment distributions such as dividends, and by making additional contributions over a long period of time, the combination of market growth and compounding returns will likely deliver strong results.

Even a low initial balance will grow substantially over time when combined with compounding investment returns.

A decade of growth

* Market value at 31 December 2021 assuming the reinvestment of all distributions. Source: Vanguard

If you’re interested in an investment strategy for your financial future, call us on Phone: 07 5641 4134.

Source: Vanguard February 2022

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Many of us make paying off our mortgage a priority. It’s the new Australian dream. But before making that last home loan repayment, use our checklist to make sure you’re prepared.

Your end-of-mortgage checklist

• Reassess your home insurance.

• Review your title.

• Review your estate plan and will.

• Assess your personal insurance situation.

• Think about your next financial steps.

Three key priorities

There are three key practical steps to take well in advance of paying off your mortgage.

1. Check the insurance

Your home is likely to be your biggest asset, so it’s crucial to make sure it’s appropriately covered. Research shows that 29% of homeowners don’t have home and contents insurance and 40% of households with insurance are underinsured.¹

You need to have a realistic idea of what your home and contents are worth. This is likely to change significantly over your years of homeownership.

If in the face of loss or damage to your home contents, you don’t have the funds available to replace or rebuild, it could mean a financial setback.

Want to know what your property is worth, request a free NAB property report today.

Want to work out what it could cost to rebuild your home or replace your contents? The Insurance Council of Australia has a calculator you can use. Then you can make sure you have enough insurance to cover the costs.

2. Revise your title

When you have a home loan, the bank holds the Certificate of Title until the loan has been repaid. At that point, you need to remove the lender from your title. When you’re at the tail end of your mortgage, you need to discharge your home loan. If it’s not done properly, it can impact your ability to sell your property quickly and efficiently.

Here’s how it’s done:

• Contact your lender – they’ll ask you to complete a mortgage discharge authority form.

• Complete the form as shown – it takes at least 10 business days to process your discharge, so think ahead if you need a quick sale or refinance.

• Register your discharge and Certificate of Title – at the Land Titles office in your state. Your lender can do this for you or you can do it yourself. If you are managing the process, below is where you’ll find the information you need.

• Some titles are also held electronically now so make sure you speak to your mortgage specialist to find out if this is applicable to you.

Below are links to the Land Titles offices in each state and territory.

New South Wales

Victoria

Queensland

ACT

Western Australia

South Australia

Northern Territory

Tasmania

3. Review your estate plan and will

If you don’t have a will, it should be one of your key priorities. If you die ‘intestate’ – that is, without a will – it creates a huge amount of complexity over your estate. The Court will appoint an administrator and this may not be the person who you would’ve chosen if a will was made. It’s a much more expensive and time-consuming process.

Working with a financial planner can make the process of putting your will together easier.

It’s also important to review your will and estate plan regularly and to update it if significant life events change your intentions regarding your estate.

These could include real estate purchases, marriage or divorce, the death of one of your beneficiaries or the birth of a potential new one. Developing an estate plan can help you protect and arrange the transfer of jointly held assets, trust assets, and superannuation benefits. These types of assets are not dealt with in a will. For example, your superannuation benefits can be distributed at the discretion of the superannuation trustee. You can put in place ‘death benefit nominations’ to ensure super benefits go to the people or organisations you choose.

You’ve done so well with your mortgage – make sure you make it over the final hurdles easily.

Have confidence in your future with help from us, call us on Phone: 07 5641 4134.

1 Canstar, Underinsurance Becoming More Common in Aussie Households, September 2016.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/pay-off-home-loan/next-steps

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Consolidating your super means moving all your super into one account. It makes your super easier to manage, and saves on fees.

Before you consolidate, pick the best super fund for you.

You can transfer your super for free in a few simple steps.

If you’re ready to consolidate your super now, go straight to the Australian Taxation Office (ATO) online at myGov.

Why consolidate your super

Consolidating your super can save you time and money.

Having all of your super in one account means you:

• save money by only paying one set of fees

• have less paperwork

• can keep track of your super balance more easily

Things to do before consolidating your super

Before you change out of a super fund, there are few things you need to do to make sure you don’t lose important things like insurance.

Check employer contributions

Check your current accounts to see if changing funds will affect how much your employer contributes. Some employers contribute more to certain funds.

Check your insurance cover

Before you leave a fund, check to see if you have any insurance through the fund. This might be life, total and permanent disability (TPD), and/or income protection insurance.

If you change funds, you might not be able to get the same cover. Be particularly careful if you have a pre-existing medical condition or are aged 60 or over.

If you’re not sure, get independent advice from us on Phone: 07 5641 4134.

When you change super funds, you usually keep the existing insurance until the replacement policy is issued and your new cover is confirmed.

Tell your employer

Whether you choose a new super fund or one of your existing ones, give your employer the details they need to pay your super into your chosen account.

Check your type of super fund

Super funds can either be accumulation or defined benefits funds. If you are in a defined benefits super fund get professional advice before you leave. Some funds are very generous, so make sure you’ll be better off. If you leave, you can’t rejoin. See Types of super funds.

When you consolidate your super, don’t just transfer your super into the account with the highest balance. The best account for you may be one of your small accounts, or an account with a completely new fund. See choosing a super fund.

How to consolidate your super

Once you’ve chosen your account, transfer the balance of your other super accounts into it.

You can do this easily online through the ATO:

• go to my.gov.au

• log in or create an account

• link your myGov account to the ATO

• select ‘Super’ and then ‘Manage’

• select ‘Transfer super’ (this option will only appear if you have more than one super account)

This will show you all of your super accounts and let you transfer your balance from one to another.

You can also transfer your balance to a new fund by:

• contacting the new fund directly

• using an ATO rollover form

Changing super funds

If you only have one super fund but you’re thinking about changing, follow the same process as you would follow for consolidating your super.

You might be thinking about changing funds to:

• invest in a fund with better services and features

• leave a fund that has been performing poorly

• leave a corporate fund after leaving your job

Don’t rush to change super funds if:

• your fund performed poorly in single year — judge its performance over five years or more

• you’re chasing last year’s top-performing fund — it may not perform as well in coming years

Remember to check your insurance cover before you change.

If you need to consolidate your super, we can help. Call us on Phone: 07 5641 4134 today.

Source: ASIC (MoneySmart)

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/consolidating-super-funds

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

In life, many of us are totally at ease and comfortable talking to our family and friends about many topics. However, for whatever reason, there are certain subjects that we’re either reluctant or feel uneasy to discuss openly – typically they are love and relationships, politics, religion and money … call them the “taboo topics”.

Add another taboo topic to the list. That is the topic of ageing. As we age and reach our elderly years, asking for some help to do things to make life easier can be really hard to bring up in conversation.

When families get together, there are things we just notice but we’re reluctant to say anything. We notice that Dad might be starting to forget things or Mum is having difficulty getting out of her chair and seems a bit uneasy on her feet. Any attempt to say something is usually met either in silence or the words “I’m okay, just getting older” are uttered.

And for many families that’s where things are left.

Then there’s a crisis…

Families are then drawn together when there’s been a crisis such as a fall or a hospital admission. Then discussions and decisions are usually being made under high stress and emotion in hospital hallways and carparks. This is not an optimal starting point.

Making decisions and what’s the trade-off…

Like other life decisions, when it comes to ageing decisions, some are relatively simple to make with minimal consequences, whilst others can be very difficult.  When making decisions, there are usually “trade-offs” to be considered.

The impact of these trade-offs usually increases as the importance of the decision increases. Therefore, to make the best possible decision, it’s important to consider as many options as humanly possible.

So what needs to be thought about…

When it comes to ageing and getting some help there are usually many options to consider and everyone is different. For instance, when getting some help in the home, exactly what help is required and possible now and into the future, who will provide the help and at what cost? If moving into an aged care facility, what care will be required, where will the new home be, what to do with the family home, and how to pay for this are all decisions that need to be made and there are usually many options to consider.

So how do families identify these options and make appropriate decisions?

Where do you start? What questions do you ask and who to?  Are the answers you get back in your best interest … or someone else’s? What needs to be done and when? What happens if there’s a problem?

How Family Aged Care Advocates fit in…

If you need help with options about aged care, we can help. Call us on Phone: 07 5641 4134 or alternatively, Family Aged Care Advocates can assist to provide guidance and support to help families identify the relevant options to help you make informed decisions to get the best care outcomes for the people you love and care for most. They’re independent aged care specialists only interested in the right outcomes for your family … that’s all that matters and there’s no trade-off with that.

Reproduced with permission of Family Aged Care Advocates

Download 10 aged care traps to avoid for your ageing parents

No specific person’s personal objectives, needs or financial situations were taken into consideration when creating the content for this article. Family Aged Care Advocates Pty Ltd (ABN 77 642 454 484) are aged care specialists. You should seek qualified financial planning, taxation and legal advice before making any decisions that are unique to your circumstances. This article was prepared in good faith and we accept no liability for any errors or omissions.

Investment forecasts, just like weather forecasts are just that – projections of what might happen on the future, based on past patterns calculated alongside all possible factors that might help provide an estimation of what might occur in the short term. If you’ve ever relied on a weather forecast to help plan a significant event or even your daily life, you would be well aware that even the best weather apps are rarely 100% accurate and sometimes just get it downright wrong.

Which is why most of us, already used to the psychological perception that weather forecasts are mostly inaccurate, simply use them to help inform but not entirely drive our decision making. The same should be said for investment outlooks. And yet, it is not always so. As humans it is inevitable for our brains to crave certainty, and when it comes to money and our investment portfolios, the last thing we want is to not know what might happen.

But as the last two years have demonstrated in spades, uncertainty is here to stay. And with that in mind, as we look hopefully towards 2022, now is probably a good time to re-evaluate your investment portfolio and figure out if your risk profile and investment objectives have changed. And if they have, to assess if your asset allocation and investment strategy are still applicable, in your investment time frame.

Against a backdrop of heightened uncertainty, and in recognition of how quickly forecasts can change, Vanguard’s annual economic and market outlook sets out our baseline scenario for the year ahead. The analysis also lays out potential risk scenarios – both upside and downside that investors should be mindful of, and the signposts to watch out for in each of these scenarios. Our main message for investors who do not have a strong conviction of how the future will pan out, is that a globally diversified balanced portfolio will serve you best in unpredictable times.

Global economic outlook

In our baseline reflation scenario, the global economy is expected to continue its recovery in 2022, albeit at a slower place, regardless of supply-chain dynamics. In the US and Euro region, growth is expected to normalise to 4%, while in the UK, growth is anticipated at about 5.5%. In China, growth is projected to fall to about 5%. By contrast, in Australia, a slightly more positive picture off the back of a lacklustre 2021 is expected, with stronger growth of 4.5% expected for 2022, thanks to an accelerated vaccination roll-out.

That said, the outlook – just as with weather forecasting – has risks embedded, and our report highlights the potential risk factors that could shift the dial to the other side. In addition to ongoing health risks coming from potential virus mutations like Omicron, we highlight risks coming from persistent labour shortages, elevated inflation and potential policy missteps. In particular, the outlook for policy will be especially crucial in 2022 as support and stimulus packages enacted to combat the pandemic driven downturn are gradually removed. The timing, pace and magnitude of stimulus removal could pose a new challenge for policymakers and a new risk to financial markets.

Unwinding of monetary policy

Inflation continues to be a media buzzword this year, worrying not just economists and policymakers. Persistently elevated inflation may force policymakers to tighten faster, earlier and much more than expected. In the US, we expect the Federal Reserve to raise rates to at least 2.5% by the end of the cycle, higher than what most in the market are pricing in. Meanwhile in Australia, a surge in inflation expectations could lead the RBA to hike interest rates earlier than expected, despite our expectation that rates will remain on hold for 2022 given sticky wage dynamics.

Importantly, while the prospect of modestly higher inflation and rates may lead some to question the benefit of bonds in an investment portfolio, our research nonetheless finds that the diversification benefits delivered by this asset class are still relevant.

Overvalued equities

Vanguard’s Capital Markets Model® has for several years now, cautioned that US equities have never been more overvalued since the dot-com bubble era, and are approaching “stretched” territory, driven by valuation expansion, not increased profit. Thus the overall outlook for 2022 remains in guarded territory and investors, particularly those in the US, should brace for a lower-return decade. Australian equities are similarly stretched, though to a lesser extent, hence our 10 year annualised returns for the local market are expected to be around 2 percentage points lower than our outlook last year, in the range of 3.5-5.5%.

Diversify to benefit

Despite the outlook for Australia looking relatively moderate, it does spell opportunities for Australian investors who allocate a portion of their portfolios to global assets. It also underscores the value of building a broadly diversified investment portfolio – gains from one investment market could help balance out another investment market’s losses, resulting in a portfolio that is less vulnerable to the impact of significant swings in performance.

The last 24 months have rewarded those who remained invested in the financial markets despite the challenging environment and troubling headlines. It would only seem prudent to continue holding on to this discipline and long-term focus for the years ahead.

Contact us today on Phone: 07 5641 4134, if you would like to discuss your finances for 2022.

Source: Vanguard February 2022

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Investment properties can generate wealth or earn you a passive income – maybe both – but even in a booming market profit is never promised.

The key to purchasing a successful investment property is to buy with your head (not your heart) and to stick to your plan. A bad buying decision made at the start of your property portfolio journey can send you down the wrong financial path.

The capital growth strategy

This tactic is banking on a property’s value growing substantially over time and usually requires an investor to hold for several years to see decent capital growth. Without a crystal ball, you’ll need to do some real estate research.

Ask yourself; ‘How much have values increased in the quarter, 12 months or five years?’ and ‘Why have prices increased there? Is there still scope for more rises?’ Also consider the desirable types of homes in an area. Just because houses there have performed well, it doesn’t mean studio apartments are a good investment too.

Some investors will negatively gear their investment, which means they’re happy to have a property cost more to hold than the rent it receives. Although ownership costs will mean investors will need to manage annual out of pocket expenses, these outlays are tax deductible and can reduce income tax.

The rental return strategy

This option focuses on positively gearing a property, so the investor earns a regular passive income. In other words, once all the ownership costs are deducted there’s still a profit. For this method to work in your favour you’ll want to research areas with a great rental yield (the profitability of a property based on the expected rental income against ownership costs).  

Gross rental yield is the total value of the property divided by the expected annual rent, multiplied by 100 to get a percentage. If an investment property is worth $500,000, and it is expected to earn $500 a week, then the sum is;

To determine net rental yield, there are more moving parts because it includes all ownership costs;

Quarterly property update: November – January 2022

After a bumper year across the Australian property market – from the city to the regions – experts are predicting slower price growth ahead. However, with limited supply and low interest rates for the foreseeable future, real estate will still be a hotly sought-after commodity in 2022.

National dwelling values were up 1.1 per cent in January, rounding out a 3.4 per cent increase for the quarter according to CoreLogic’s monthly Hedonic Home Value Index.ⁱ Coast and county price growth continued to outpace that of the cities with the combined capitals reporting a modest rise of 2.6 per cent while the combined regions jumped 6.3 per cent in the three months to January 31.

A new beginning

While no commentator can guarantee how property will perform in 2022, one thing is certain according to REA Group senior economist Eleanor Creagh – 2021 finished very differently to how it started.

“There were three consecutive months of elevated new listings, with November bringing a decade high for new listings in capital cities. The easing of COVID restrictions in NSW and Victoria boosted seller confidence and buyers took advantage of the choice available,” she wrote in her January PropTrack digest report.

REA analysts expect new listings to remain elevated during the start of 2022, as would-be sellers respond to strong price growth. And with more homes on the market, there should be a better balance of supply and demand to calm down skyrocketing prices. “Already high home prices, along with bottoming mortgage rates, will slow annual price growth. Savings made from lower interest rates were very quickly absorbed by higher housing prices and that commensurate boost to affordability is expiring,” Ms Creagh said.

In addition to this, the Australian Prudential Regulation Authority’s changes which took effect late last year are also having a subtle impact, reducing the borrowing capacity of new buyers.

Million-dollar metro markets

Sydney no longer stands alone with a $1 million plus median. CoreLogic’s latest Index revealed that three of the eight capital cities now have a median house value exceeding the $1 million mark. Melbourne surpassed the milestone for the first time in January reaching $1.002 million, while it was the second month in a row for Canberra which now sits at $1.032 million. Sydney also hit a new price point with the median climbing to $1.389 million.

City snapshots 

Melbourne – During the three months to January 31, the Victorian capital has seen a 0.8 per cent rise in the median dwelling value to $798,881. Melbourne’s rents increased by 5 per cent (houses) and 4.4 per cent (units) annually while the gross rental yield for the city was 2.8 per cent.

Sydney – Over the quarter the Harbour City experienced a median dwelling rise of 1.8 per cent to $1.106 million. The annual change in rents for Sydney was up 9.3 per cent (houses) and 8 per cent (units). Sydney’s gross rental yield was sitting at 2.4 per cent.

Brisbane – Home values in Queensland’s capital had a significant jump of 8.3 per cent during the quarter to reach $706,594. Over the year, rents rose by 11.6 per cent (houses) and 6.7 per cent (units) and Brisbane’s gross rental yield was 3.6 per cent by January’s end.

Canberra – The nation’s capital saw a surge in the median dwelling value of 3.7 per cent to $906,529. In a 12-month period, rent in Canberra jumped 9.2 per cent (houses) and 6.8 per cent (units) while the gross rental yield was 3.8 per cent.

Perth – By the end of January, the West Australian capital had a 1.2 per cent increase to dwelling values taking the median to $531,243. Perth’s rents were up 8.9 per cent (houses) and 7.7 per cent (units) over the year and its gross rental yield was 4.4 per cent.

Units back in demand

After a rocky ride for city units in 2020 and 2021, apartments could be back in favour for 2022. “The reopening of international borders and subsequent return of skilled migrant workers and international students is likely to see increased demand for inner-city rentals,” Ms Creagh said.

“Rents in regional areas have surged while largely remaining flat or declining in inner-city locations due to pandemic-induced preference shifts. Almost two years after lockdowns first emptied city apartments, demand could be set to recover as life returns to CBDs.”

With investor activity picking up in the latter half of 2021, there is increased demand for units. REA Group reported a two-year high in investor enquiry to real estate agents via their realestate.com.au portal.

APRA’s increase to the serviceability buffer – coupled with the fact investor loans typically have higher interest rates – means affordability could impact investors more than owner occupiers thus pointing them towards units.

The future of interest rates

Despite the RBA Governor Philip Lowe repeatedly maintaining throughout the pandemic, that the official cash rate wouldn’t move until late 2023 – at the earliest – there is now speculation a rise could come much sooner.

Westpac recently announced it expected the cash rate to reach 1.75 per cent by 2024. The big bank predicted six interest rate rises – in August 2022, October 2022, March 2023, June 2023, December 2023 and March 2024.

While the official rate is staying put for now, comparison site Mozo.com.au recently reported that in the three months to January’s end, there were already 2835 increases to fixed rate home loans by 78 providers.ⁱⁱ Clearly, lenders aren’t waiting for a green light from the RBA to make a move on mortgages which could impact borrowing power sooner rather than later.

If you would like to discuss your borrowing power or refinancing for 2022, get in touch with us on Phone: 07 5641 4134 today.

i CoreLogic’s Regional Market Update: https://www.corelogic.com.au/news

Note: all figures in the city snapshots are sourced from: CoreLogic’s national Home Value Index (February 2022)

ii https://mozo.com.au/media-room/rba-interest-rates-jan2022

Investment returns are unpredictable.

Take last year, for example. Few would have predicted that the price of coffee beans would outperform global share markets.

But that’s exactly what happened, thanks to a combination of unforeseen climatic events and the ongoing impact of the Covid-19 pandemic on supply chains around the world.

Those factors, combined with political instability in some coffee-producing regions, saw the price of beans rise almost 80 per cent over 2021.

That was almost three times the 26.9 per cent gain by the United States share market and around six times higher than the 13 per cent increase recorded by the Australian share market.

Even still, share market returns last year were among the best ever recorded. They continued their upward momentum after what ultimately proved to be a stellar year in 2020.

So, what will happen in 2022? For one thing, don’t expect the price of a cup of coffee to come down.

But, as for other investment returns, expect similar challenges to the ones experienced in 2021. Here’s some key insights from our latest Vanguard Economic and Market Outlook report.

Our outlook for 2022

Global growth: The global economic recovery is likely to continue in 2022, although we expect rebounding activity to give way to slower growth whether supply-chain challenges ease or not. Labour markets will continue to tighten, with several major economies including the U.S. quickly approaching full employment.

In both the U.S. and the euro area, we expect economic growth to slow to 4 per cent. In Australia, we expect stronger growth in 2022 of around 4.5 per cent as lockdowns ease on the back of positive vaccination progress.

Global inflation: Consumer prices have trended higher across most economies, driven by a combination of higher demand as pandemic restrictions are lifted and lower supply.

We expect supply/demand frictions will persist well into 2022 across developed and emerging markets. Inflation is likely to remain elevated given the employment outlook and will be the critical determinant in interest rate policies.

Financial markets: A backdrop of low bond yields, reduced government support, and stretched company valuations in some markets offers a challenging environment despite solid fundamentals. We’re projecting the lowest 10-year annualised returns for global shares since the early 2000s, with more attractive returns expected outside the United States.

We expect the lowest ones in the U.S. (1.9 per cent–3.9 per cent per year), with more attractive expected returns for non-U.S. developed markets (5.0 per cent–7.0 per cent) and, to a lesser degree, emerging markets (3.8 per cent–5.8 per cent). Meanwhile, returns for the Australian market are expected to be in the range of 3.5 per cent–5.5 per cent, which is around 2 percentage points lower than our outlook last year.

Thinking long term

While past investment returns can’t be used to predict the future, they’re a useful roadmap.

Vanguard’s 2021 annual index chart shows that while markets experience volatility and can sometimes fall quite sharply over short periods, they consistently rise over longer time frames.

A $10,000 investment in mid-1991 into the U.S. share market would have grown to $217,642 by 30 June 2021 if all income received had been reinvested back into U.S. shares. That’s based on the 10.8 per cent average annual return from the broad U.S. market over 30 years.

The same amount invested into Australian shares would have grown to $160,498 based on the 9.7 per cent per annum return from the Australian share market since the start of the 1991-92 financial year.

Left in listed property, which has returned 8.6 per cent per annum, a $10,000 investment would have increased more than 10 times to $118,013. The same goes for international shares, although its 8.3 per cent per annum return delivered a slightly lower outcome and would have turned $10,000 into $107,939.

In Australian bonds, which have returned 7 per cent per annum over 30 years, a $10,000 starting investment would have been worth $75,807 at 30 June last year.

The lowest long-term return over three decades has been from cash.

If you’d left your money in cash it would have earned 4.6 per cent per annum and grown to $38,938. It’s a much lower return than from other asset types. But it’s still almost four times the original amount invested.

The Vanguard Index Chart can be viewed by clicking here.

Whatever 2022 holds, the best pathway is to stick to your investment strategy. Don’t count on rapid gains, and always expect some market volatility.

Investors who stay the course, rather than trying to time when to buy and sell, tend to be more successful in the long run.

If you’d like help with your investment strategy, contact us today on Phone: 07 5641 4134.

Source: Vanguard February 2022

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

It’s easy to walk into debt, but so much harder to get out of it. You must own your mess and know that your financial reason for living is to pay down your debt, writes Glen James author of Sort Your Money Out & Get Invested.

Apathy and debt reduction don’t go hand in hand. You know exactly what your sacrifice will be — and there will need to be some sacrifice.

Not only do you first need to be living on less than you earn, you also need to have a surplus to pay down debt. It isn’t going to be easy and you know it.

Here are some extremely practical steps to help you win the ‘cleaning your debt’ battle.

Remember, this is not forever. The deeper you sacrifice now, the sooner you will be debt free and able to get on with life.

Try these six steps to rid yourself of debt

1. Focus and determination

One way of focusing on paying down debt is to have a goal that’s greater than the debt itself.

A useful goal is to add up all your debt and the total monthly repayments and do a basic calculation to work out how many months it will take to clear your debt. Your challenge is to try to halve that time period.

2. Reward yourself

As we want to throw everything at your debt-clearing campaign, you should think of some things you’d like to do — either financial or non-financial — after you pay off each debt. And you should also celebrate once you’re completely out of debt.

Use a blank piece of paper to write down a few reward goals.

3. Pull a budget lever

There are four levers you can pull on a budget to make changes so that you have more money to throw at your debt.

1. Increase your income with a pay rise or a second job.

2. Decrease your savings, because you really should not be saving while you’re trying to get out of debt.

3. Reduce your costs by reviewing the categories in your budget. Do you need a personal trainer and a gym membership?

4. Or you can cut something out completely.

Sticking with the health and fitness examples, you may choose to cut this category out completely while you attack your debt. This could be ditching the gym and personal trainer and deciding to just go for a jog to keep fit, or buy some weights for the back deck.

4. Gumtree

What crap (I mean, ‘valuable items to others’) do you have lying around that you could move out of your life?

If it hasn’t been used in 18 months and it isn’t a family heirloom, sell it and put the money towards paying down debt. You can always buy more crap later when you’re out of debt.

And think about how great you’ll feel after de-cluttering and getting your house and garage in order, to reflect the fact you’re getting your financial life in order.

5. Existing savings

If you’re in consumer debt on one hand and on the other hand have cash savings, it’s probably because you don’t have a solid money system in place, and/or you’re conflicted and have a mash-up of logic and emotions in your mind.

That’s okay. It can be scary. Start by deciding that you are no longer saving any more money and instead, each pay allocate your savings money towards your debt.

6. Side hustles

Side hustling is when you work on the side to your regular or main job and ‘hustle’ to make additional money or to advance your career.

I am not a fan of pursuing a side hustle for the sake of it. I believe there are a few specific reasons you should do a side hustle.

A side hustle can earn you extra money to get you out of debt and to save for a short-term goal. If a side hustle grows exponentially, you have an opportunity to quit your main job and pursue your own business 100 per cent of the time. You can also allocate your side hustle income to investments.

It is important to understand that if you’re doing a side hustle to pay for food, rent and other day-to-day expenses, it’s really just a second job.

This could be a sign that your expenses are higher than your income, which means you may need to consider reducing your expenses or that you’re being underpaid.

You are now able to start cleaning up your mess. In fact, you can tell people your side hustle is ‘debt cleaner’.

This is an edited extract from Sort Your Money Out & Get Invested (Wiley, $32.95), available now where all good books are sold.

Source: Flying Solo January 2022

This article by Glen James is reproduced with the permission of Flying Solo – Australia’s micro business community. Find out more and join over 100K others https://www.flyingsolo.com.au/join.

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) ac www.flyingsolo.com.au > Logo file is here: https://bit.ly/flying-solo-logo

Buying a home is one of the biggest financial decisions in a lifetime. Determining which loan is best can be overwhelming without understanding which products and features are available on the market. There are a lot of home loans to choose from, but not all will be well suited to your needs. To help you select a home loan that is right for you, we have compiled a list of home loan products and their key features. You should always seek financial advice to suit your own circumstances.

The interest rate – fixed vs variable

Probably the most important decision is whether you choose a variable interest rate loan or a fixed rate loan. The decision to take a fixed or variable rate loan is really a decision about managing your risk. Both types have pros and cons and the direction of interest rate movements is unpredictable. 

You should always seek financial advice to suit your own circumstances. 

Variable interest rate

With a variable interest rate loan, the interest rate charged to you may go up and down. This means that your regular repayment amount will also go up and down as the interest rate changes.

Benefits

• You are usually permitted to make additional repayments that can save you interest and can help you pay off your home loan sooner

• Variable rate home loans typically have more flexibility with additional features such as redraw and mortgage offset.

Things to consider

• Your repayments may increase if interest rates rise

• Makes budgeting more difficult as you are less certain of how much your repayments will be and how interest rates will move

• If you have not budgeted for interest rate rises, you may have difficulty keeping up with your repayments. 

Fixed interest rate

With a fixed interest rate loan, the interest rate charged to you is locked for a set period, typically 1,2 3,4, 5 or 7 years. This means your regular repayment amount will not change during that time.

At the end of the fixed rate term, the loan will usually switch to the standard variable rate offered by the lender or you can choose another fixed rate term.

Benefits

• Your repayments will not increase if interest rates rise

• Fixed rate loans provide certainty and make budgeting and planning for your future easier as you know exactly how much your repayments will be.

Things to consider

• You will not benefit from falling interest rates

• You are fixed into a set term, so you may be unable to sell your property or refinance until that term has expired

• Unlike exit fees that were abolished in 2011, lenders can still legally charge you a break fee if you payout or refinance a fixed rate loan during the fixed rate period

• You may not be permitted to make any additional repayments, or they may be capped to a certain amount

• A redraw facility is usually not available on fixed rate loans

• When you refinance upon the expiry of your fixed rate loan, interest may have significantly increased. 

Split loan – Part fixed part variable

Another option available is to split your home loan so you have part with a fixed interest rate and part with a variable interest rate. There is typically no restriction on how you split the loan, so you can allocate the proportions that you are most comfortable with e.g. 50/50 or 30/70 etc. A split loan allows you to take advantage of the benefits of both types of loans – you have the certainty of a fixed rate on part of your loan as well as the flexibility to make extra repayments on the variable rate part of your loan. 

Principles and interest vs interest only

Generally, home loan repayments will consist of principal and interest components, gradually reducing the amount owing on your loan. With interest-only loans, only the interest is paid each month, leaving the original principal outstanding at the end of the loan term. This means that at the end of approximately 10 years, you will still owe what you started with.

Principal and interest

Benefits

• You will pay less interest over time and you will pay off your loan in full by the end of your loan term.

Things to consider

• Your repayment amount will be higher as the principal is being repaid as well as interest.

Interest only

Benefits

• Your repayment amount will be lower during the interest only period as no principal amount is being repaid.

Things to consider

• At the end of the interest only period, your repayments will increase and be higher to repay the principal over the remaining, shorter term. 

Additional repayments

Some loans offer the ability to make repayments above the minimum repayment amount, so you can repay the loan faster and reduce the amount of interest you are charged.

Redraw Facility

This is an optional feature on certain home loans that allows access to any additional repayments made on your home loan. If you redraw funds from your home loan, your outstanding balance will increase. Some lenders have a minimum redraw amount and may also charge a fee per redraw. 

Offset account

A mortgage offset account is a bank account that is linked to your home loan. No interest is paid on the savings in the offset account. Instead the savings in your bank account reduce the balance of your loan on which interest is calculated.

Benefits

• Your home loan interest is charged only on the net balance, reducing the amount of interest you will be charged which mean you can pay your loan off sooner.

Things to consider

• Higher monthly fees may apply to have this feature

• No credit interest is earned on the balance in the linked account

• Additional repayments.

Some loans offer the ability to make repayments above the minimum repayment amount, so you can repay the loan faster and reduce the amount of interest you are charged.

Repayment holiday

This feature offers the ability to take a break from your mortgage repayments. Typically, you can reduce or avoid making your repayments for up to six months, during which time the interest is normally added to your loan. Lenders will typically allow repayment holidays when you are changing jobs or are on maternity leave.

Loan portability

This feature allows you to transfer your home loan to another property if you move. This may save you money on application fees and mortgage stamp duty down the track. 

Repayment frequency

Refers to the regularity of loan repayments over a period of time which you must make as indicated in your loan agreement. Repayment frequencies are generally weekly, fortnightly or monthly. It is good to have this flexibility to you can align your repayments to your pay cycle.

Top up

Some lenders allow you to increase your loan down the track, using the equity in your home, to complete home renovations, make an investment etc. Fees and charges may apply.

Contact us today if you need help figuring out which home loan would best suit you – call us on Phone: 07 5641 4134.